Obamacare fight is punishing Wall Street

DavidWeidner

Anti-Obamacare protesters wear masks of President Barack Obama and Grim Reaper as they demonstrate in front of the U.S. Supreme Court in June.

SAN FRANCISCO (MarketWatch) — I’m certain I missed a few, but by my count the U.S. House of Representatives has now voted to repeal, defund or otherwise emasculate Obamacare 42 times.

And in other news, there still is no Volcker Rule ban on risky trading and investing activities for big financial institutions.

As of Sept. 3, 280 Dodd-Frank rulemaking requirement deadlines have passed. Of these 280 passed deadlines, 172 (61.4%) have been missed and 108 (38.6%) have been met with finalized rules, according to Davis Polk & Wardwell LLP, a law firm.

Seems as if regulators could use a kick in their chinos. Yet obsessing about Obamacare is how the U.S. Congress has spent the last two years. Everything else seems to have been given short shrift.

And to be blunt, this appears to be mostly the work of intransigent Republicans in the House. They continue to argue that most Americans don’t like the Affordable Care Act. The problem is that poll, after poll, after poll shows it’s at best a 50-50 split. Moreover most, 70%, of the people answering these surveys don’t know how Obamacare is going to work. Those who do understand tend to like it more.

Part of the problem: the House rejected an administration request for $554 million in education efforts for the public.

I apologize. This column isn’t supposed to be about health-care reform. It’s supposed to be about Wall Street. Unfortunately, Washington is in a health-care trance. Everything else be damned.

The effort to derail Obamacare has stalled Wall Street clean-up efforts. But now it’s threatening to do more: cripple the markets, shut down the government, potentially cause a default, or perhaps just as worse, trigger a ratings downgrade for U.S. debt.

The fight over the debt ceiling, about entitlements, about the budget and the health-care law. We go through this every year now. Government spending represents close to 40% of gross domestic product, so these threats to cut off or cripple that cash flow into the economy are serious business, sending investors fleeing and pressuring corporations to hold back on investment.

On Friday, 236 business organizations — including the Business Roundtable and U.S. Chamber of Commerce — wrote to lawmakers urging them to keep the government open and raise the federal borrowing limit.

Moreover the damage to the economy is more than just about federal spending. Those so-called “non-essential” government workers are essential to many industries that depend on them. For instance, the loss of data from the U.S. Department of Agriculture will make it harder for farmers and investors to make decisions.

Regulatory arms will take a hit, too. The Securities and Exchange Commission will furlough many of its employees, but declined to give specific numbers. The commission said in a statement that the agency “will remain open and operational in the event the federal government undergoes a lapse in appropriations.”

The Commodities Futures Trading Commission will furlough 652 of its 680 employees. That leaves 28 people to regulate much of the $565 trillion derivatives market. Yes, trillion.

A default on U.S. debt has the potential to be more calamitous to the economy. Writing last year about the potential fallout, Drew Matus, senior U.S. economist for UBS Investment Bank, wrote that the inability to trade or hold U.S. Treasurys would gum up the “plumbing” of the financial system. “The impact of a U.S. Treasury default could make us nostalgic for the market conditions that existed immediately after the failure of Lehman Brothers.”

Just look at what happened last year when a default was threatened and didn’t happen.

“The U.S. would be in uncharted territory,” wrote Steven Wieting, global chief investment strategist at Citi Private Banks. “A very late passage of a debt-ceiling increase in mid-2011 resulted in severe turmoil, and a 19% correction in U.S. share prices in the period both before and after that event.”

Frankly, that sounds optimistic. Many of these strategists failed to give adequate warnings about the market before the market crashed in 2008 and 2009. And the last government shutdown occurred in 1995 and 1996. The fact is we don’t really know what the impact of a shutdown or default or both will be in today’s fragile economy.

But you know, that’s hardly worth a concern. What really matters is the nagging issue of a health-care law that is the biggest Christmas gift to the insurance industry ever recorded. As PolitiFact concluded “at its heart, (Obamacare is) a system that relies on private companies and the free market. The majority of Americans will continue to get coverage from private insurers.”

As an investor, you already know that. Health-care stocks as measured by Vanguard Health Care ETF
VHT, -0.26%
are up 68% in the last five years compared to a 31% return for the Dow Jones Industrial Average
DJIA, -0.05%
.

And why wouldn’t they be up? A system that adds more than 30 million premium-paying customers to its rolls isn’t exactly bad for business. That’s why the American Health Insurance Plans trade group and American Medical Association supported it.

But no. Even though most people don’t understand it, don’t care to inform themselves about it, they’ve made a decision that Obamacare has to be stopped no matter the cost. Everything else — like regulating an industry that brought about the biggest recession since the Great Depression, the economy, the nation’s standing in the world — needs to be sacrificed so a program essentially set up to benefit the private sector is stopped. Why? Because it’s a “government takeover.”

If Obamacare does come to pass, let’s hope this faction in Congress takes advantage.

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